State Bar of Arizona Ethics Opinions

87-16: Fees

7/1987

Law firm including the amount of money recovered for costs, attorney fees, interest, and all other sums recovered for purposes of computing contingent fee.

FACTS

The inquiring attorney advises that his firm is involved in representation of plaintiffs in personal injury and insurance bad faith litigation. The firm is retained by the clients pursuant to a contingent fee contract which provides that the client agrees to pay the law firm, as and for its attorneys' fees, a certain percentage of "all amounts ultimately recovered” from the defendant.

The attorney advises that sometimes the recovery on behalf of the client includes specific amounts awarded by the court as and for attorneys' fees and costs. Presumably, some of the costs are costs taxed pursuant to A.R.S. 5 12-341, Rule 54(f) of the Arizona Rules of Civil Procedure (16 A.R.S.), and other statutes authorizing the recovery of costs. He also advises that the recovery may include items of special damages, such as medical bills or lost wages.

QUESTION

The inquiring attorney seeks advice from the committee as to whether it is appropriate for his firm to include the amount of money recovered for costs, attorney’s fees, interest and all other sums recovered in the total recovery for purposes of computing the contingent fee. As an example, the inquiring attorney suggests that, if the plaintiff is awarded $11,500.00 by a jury at trial and is entitled to an additional $500.00 in taxable costs, and if the attorneys have been retained pursuant to a written contingent fee agreement authorizing a fee of one-third of the recovery, would the attorney not have made a recovery of $12,000.00 and, thus, earned a fee of $4,000.00?

ETHICAL RULE INVOLVED

ER 1.5(c). Fees

OPINION

The question presented to us is solely one of law, a question of interpretation of the contractual arrangement between the attorney and the client. As the question is solely one of law, it is beyond the purview of this committee's jurisdiction in that our Statement of Jurisdictional Policies prohibits us from rendering opinions on questions solely of law. The question is, after all, one which inquires as to the appropriate interpretation of the contractual relationship between the attorney and his client.

However, we choose to respond formally so as to remind the inquiring attorney and the Bar of the existence of ER 1.5(c) which provides in part:

A contingent fee agreement shall be in writing and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.

What any particular fee arrangement means is a question of law to be determined under the particular facts and the particular language chosen for the fee agreement by the attorney and the client. What is clear, however, is that the written fee agreement must include a provision that makes clear against what fund the contingent fee is to be calculated. Whether expenses are to be deducted before or after the contingent fee is calculated is not a matter which may be left open for discussion or interpretation after the fee is earned.

We do comment that it would seem that the written fee agreement apparently being utilized by the inquiring attorney, which applies a contingent fee percentage to "allamounts ultimately recovered", without more, may not be in compliance with ER 1.5(c). We suggest that this fee agreement be redrafted, if it contains no more than this phrase, so as to bring it into compliance with ER 1.5(c).

The committee declines to render an opinion on the question of whether a contingent fee percentage may be charged against the recovery of costs as, assuming the written contingent fee agreement is in compliance with ER 1.5(c), what any particular contractual arrangement means is a question of interpretation of the particular provisions of that agreement and, thus, beyond the jurisdictional capabilities of this committee.

Formal opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceeding. This opinion is based on the Ethical Rules in effect on the date the opinion was published. If the rules change, a different conclusion may be appropriate.